5 Rocket Stocks to Buy for Earnings Season

Written by: Jonas Elmerraji01/07/13 - 12:48 PM EST

Tickers in this article:
BEAM BRCM EL HAL LUV

BALTIMORE ( Stockpickr) -- Earnings season officially kicks off with Alcoa's (AA) fourth quarter numbers on Tuesday, bringing on the first quarterly data dump of 2013. With the strong start to the New Year we've already enjoyed, it's going to be important to see earnings numbers follow suit.

Other economic fundamentals have been throwing off some auspicious hints of their own over the last couple of weeks. Unemployment's holding steady at the lowest rates since the Great Recession, housing numbers are picking up, and it looks likely that guidance -- rather than earnings releases themselves -- will take the spotlight starting this week.

If the first week of 2013 is any indication of what we should expect for the year ahead, we're in store for some big gains. Last week, the S&P 500 put 4.57% in between its opening value and Friday's close. I've been talking about the possibility of a rally for a while now, but earnings season should give that outlook its first real test.

Still, as well as the S&P did last week, our list of Rocket Stocks managed to do one better, ending just shy of 4.9% for the week. That's reason enough to take a closer look at a new set of Rocket Stock names for this week.

For the uninitiated, "Rocket Stocks" are our list of companies with short-term gain catalysts and longer-term growth potential. To find them, I run a weekly quantitative screen that seeks out stocks with a combination of analyst upgrades and positive earnings surprises to identify rising analyst expectations, a bullish signal for stocks in any market. After all, where analysts' expectations are increasing, institutional cash often follows. In the last 183 weeks, our weekly list of five plays has outperformed the S&P 500 by 73.2%.

First up is $24 billion cosmetics firm Estee Lauder (EL) . EL owns popular brands like Clinique, M-A-C, and Origins in addition to its namesake makeup label, reminding investors just how attractive selling makeup can be -- no pun intended. That's because Lauder's net margins consistently ring up in the double digits, and the firm boasts an attractive sales mix that's spread across a large number of target markets. At last count, only 40% of Estee Lauder's sales are earned in the U.S.

Cosmetics are luxury goods that sit in an attractive space. For starters, consumers aren't likely to forgo makeup for budgetary constraints; they're more likely to trade down their brands than they are to go without. On the flip side, luxury consumables like cosmetics rarely have a large correlation between selling price and input costs. Estee Lauder hits both of these benefits because of its wide product net -- because the firm sells brands positioned all along the cost spectrum, it can continue to sell in tougher times and boost margins when consumers are willing to spend more on makeup.

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